What is the background of b-to-b collaboration?
The idea of b-to-b partnership dates back to the 1980s, but it is still relevant after 40 years. Today managers, consultants, and even researchers like to talk about business ecosystems as a modern form of organization. Business ecosystems are viewed as multilateral networks that share a common destiny due to strong mutual dependencies. Partnerships are the cornerstones of business ecosystems. A smooth flow of information and materials is seen to be based on organizational bi- and multilateral integration of the firms in a value chain. Integration refers here to the relationships between network actors and it consists of four dimensions: 1) exchange (the flow of products and services between firms in a network), 2) strategic (common/shared vision, strategy and innovation in terms of co-creative actions), 3) structural (cross-border structures, processes, and systems) and 4) social (trust, commitment, unity).
A partnership as an integrated form of business relationship is not valuable in itself, but as an organizational solution for coping with challenging, uncertain, business situations. When the business exchange between parties is complex, varying and it needs continuous development and when the business environment develops fast, an integrated relationship is something that is needed to cope with the uncertainties. Under such business conditions, strategic cooperation helps the parties of a relationship or in a network to streamline individual firms’ actions to reach an optimal value-generating business ecosystem. Further, strategic cooperation is not possible without some cross-border structures where managers meet regularly. And finally, any cooperative arrangement is not possible without a positive social atmosphere in a relationship or a network.
The advantages of collaboration are based on the availability of physical resources, information, and knowledge through a cooperative interaction between the parties. In a partnership, firms are committed to serve customers as well as possible in all kinds of situations by allocating their resources to partners. Mutual interaction is a key to improve and continuously develop products, services, and processes. The smooth flow of information between the parties is an important factor for operational efficiency, and the availability of knowledge makes it possible to co-create something unique faster than it would be possible intra-organizationally.
What drives supply chain collaboration today?
Driver 1: To ensure the availability of materials and services under situations of resource scarcity
Business environments have faced severe market turbulence due to the Covid 19 pandemic. The availability of raw materials and components has generally been very low. Under situations of sudden or chronic resource scarcity firms that manage their supply networks by collaborative rather than hierarchic/market-based logic, do better in terms of securing the smooth flow of supplies. The argument is based on the logic of partnering defined above. First, firms with good strategic connections may have a ‘plan b’ for this kind of situation. Second, continuous interaction within the inter-organizational structures help managers to react faster together and in a more coordinated way than managers having a more distant relationship with their supplier or customer firm colleagues. And lastly, an excellent social atmosphere in a relationship in terms of trust, commitment and unity, ensures that the suppliers exert themselves in trying to serve partner-customers even in hard circumstances.
Driver 2: To ensure smooth flow of operations in challenging exchange situations
Business exchanges vary from simple to complex in terms of technology and design. Moreover, in addition to physical supply, the supply may consist of various services with a link to the raw materials, components, or products that form the core body of a supply. In the case of a technologically complex supply, the need for information sharing between the parties is higher than in the case of a technologically simple product. Also, when the supply includes various services, more interaction is needed between the parties owing to the interactive nature of service production. Thus, the exchange complexity with the growing share of services in industrial business necessitates collaborative business relationships with structural, strategic, and social forms of manifestation.
Driver 3: To control costs by co-development and optimization
The market-based logic of supply chain management highlights the aggressive use of a market mechanism to ensure the lowest possible costs of purchasing. An opposite supply chain strategy, again, builds on supplier/customer cooperation aiming to cut costs through openness and co-development of products and processes. For the parties of a relationship, this also means rather an optimization than maximization of own advantage and if the co-development of products and processes succeeds, the overall cost level becomes lower making the rewards to be shared between the parties bigger. To co-develop something, firms’ managers and experts need to interact and work together towards a common goal. This again necessitates certain strategic or operative goals, cross-border structures, and high enough trust and commitment to happen.
Driver 4: To ensure the best possible knowledge in R&D and continuous improvement
Where the sharing of information generates mostly operational advantages, the sharing of knowledge generates strategic and long-term advantages. At its best, partnership-based innovation processes are faster and sometimes even more innovative than intra-organizationally executed processes. It is also important to notice the role of inter-organizational continuous improvement of products and processes. Without these practices the cross-border area remains a grey area in terms of developmental actions, thus causing ineffectiveness at the business ecosystem level. So, in order to improve business ecosystem innovativeness and effectiveness as a strategic asset, all relevant knowledge of firms in an ecosystem should be harnessed for the common good. A certain level of trust and commitment, relevant inter-organizational processes and practices as well as a common vision in terms of relationship or network-level planning are needed to activate the use of firm-specific knowledge.
Driver 5: To ensure new business concepts based on co-creation
Business concepts need not be developed by single firms, but by a group of firms. This means that several firms form a coalition, which has a common business boundary toward the customer. For example, in big projects, a group of suppliers forms a strategic group, which builds a partnership-based relationship with the customer. In this kind of situation, the challenges for partnership formation are two-fold. First, the firms in a strategic coalition need to integrate themselves as a well-functioning business group, and second, the group needs to build an open and trusted relationship with the customer. The social dimension of business relationship plays an important role here as firms’ boundary spanners need to integrate themselves as well-functioning teams.
Driver 6: To build sustainable supply chains
B-to-B collaboration is the key to building new sustainable value chains for several reasons. First, sustainability necessitates openness, transparency, and traceability throughout the entire business ecosystem. Second, the smooth operation of sustainable supply chains requires strict coordination of resources, actions, and capacities to achieve economically and environmentally acceptable results. Third, the new business concepts based on the circular economy, necessitate excellent visibility throughout the supply chain in order to see and seize the business opportunities related to sharing, leasing, reusing, repairing, refurbishing, and recycling existing materials and products as long as possible.
What is the role of digital platforms in the formation of business ecosystems?
Referring to the elements of partnerships, digital platforms belong to the structural dimension of a relationship. They enable firms to build boundary processes and practices to coordinate resources, transfer data, and share information and knowledge. Most importantly, SaaS-based digital platforms are cost-friendly and easy to adapt even for smaller firms. It means that entire business ecosystems can be equipped with digital platforms that ensure excellent connectivity throughout the ecosystem.
Jakamo as a specialized digital platform for supply chain collaboration enables the integration of business ecosystems as a structural feature of business relationships. Jakamo is based on one-to-one business relationships, which are the basis for all networks and business ecosystems. Due to its patented feature, each firm using Jakamo defines itself as the center of the network, which makes it possible to see the ecosystem always from one’s own perspective. The wide availability of ready-made interface connections enables firms to be digitally connected with their partners cost-effectively regardless of the varying IT systems in use.
Jukka Vesalainen, professor
University of Vaasa
Co-founder & Board Member at Jakamo